Loan rates are extremely important when it comes to seeking funds from banks and financial institutions. No matter how good the conditions seem – long terms, lack, etc. -, the most important is to pay attention to interest because they can make the money received very expensive.
It is critical to evaluate the options available and to seek lower rates on different banks and lines of credit.
Want to understand more about it? Follow the information in this article.
What Makes a Loan More Expensive?
- What is Total Effective Cost?
- Why are some loan rates lower than others?
- What are the most attractive loan options?
- 1. Vehicle Financing
- 2. Real estate financing
- 3. Consignment Credits
- 4. Factoring or anticipation of receivables
- 5. Leasing
What Makes a Loan More Expensive?
Not only do interest rates influence the value of loans. Other factors impact the total to be paid, for example:
- term – the higher it is, the more interest you will pay;
- bank fees – fees to open and renew credit, to hold your account or transfer your funds to another bank may increase your debt;
- IOF – mandatory for any transaction, the Financial Transaction Tax is calculated on the amount you borrow and embedded in the installments, increasing the final value.
At the time of the choice, evaluate all the costs you will have to borrow money and calculate, by adding up the total installments, how much you will actually pay.
What is Total Effective Cost?
The CET ( Total Effective Cost ) is a rate that represents the total price you pay for the money you borrow. As the above amounts are also, as we said, embedded in the debit balance, effective interest rates are higher than the contracted.
The CET, then, represents the rate you actually pay for the money. Comparing the CETs of your options is a clear and simple way to choose the most advantageous loan.
Why are some loan rates lower than others?
The less collateral the bank has that it will receive the amount borrowed, the higher the interest rates. Therefore, vehicles and real estate financing tend to have much more attractive interest rates.
Also, most credit operations are covered by insurers that reimburse banks if the customer defaults. Loans without many guarantees, with a higher degree of risk, do not count on this insurance and become, for the banking client, much more expensive.
What are the most attractive loan options?
According to the above premises, they can be more attractive:
1. Vehicle Financing
Cars, motorcycles and trucks, for example, have specific lines of credit. In them, the vehicle is given as collateral for the loan and is disposed of fiduciarily to the bank, until the total repayment of the debt. That is: the owner uses the property, but can not sell or transfer to a third party.
2. Real estate financing
Like vehicle financing, home and apartment loans also have very attractive rates, because the property gets stuck with the contract until the last installment is paid.
3. Consignment Credits
These are those cash loans in which the installments are debited directly from the debtor’s payroll. There are options for:
- public servants;
- employees of companies with payroll in the bank and contract for direct discount in the net.
4. Factoring or anticipation of receivables
A Factoring company or even a banking institution allows an entrepreneur to offer their balance receivable from installment sales (checks, tickets, etc.) in exchange for credit.
Commonly called prepayment of receivables, this alternative makes the company have money to use as working capital, even selling on term.
Although it is an interesting alternative, it is necessary to be aware of the percentage that Factoring gets from its receivables, since some may have very high rates.
Leasing , or leasing, is a credit option similar to renting a vehicle. In this case, you, as the customer, pay for the use of the good and, at the end of the contract, become the owner if you decide to do so.
It is important to always emphasize, on the other hand, that credit card and special interest rates make these sources of funds very expensive, especially for companies that work with reduced profit margins. Avoid them, therefore, and look for more viable alternatives.